Committee for Enterprise,
Trade and Investment

Wednesday 19 June 2002

MINUTES OF EVIDENCE

Limited Liability Partnerships Bill:
Committee Stage
(NIA 9/01)

Members present:

Mr P Doherty (Chairperson)
Mr Neeson (Deputy Chairperson)
Mr Armstrong
Mr Clyde
Mrs Courtney
Mr McClarty
Dr McDonnell
Mr Wells

Witnesses:

Mr M Bohill ) Department of
Ms J Bryans ) Enterprise, Trade
Mr J Johnston ) and Investment

The Chairperson: I welcome the Department of Enterprise, Trade and Investment officials, who have appeared before our Committee before.

Mr Bohill: I will introduce my team. I am Mike Bohill and my colleagues are Mr Johnston and Ms Bryans. I have four key points to make, and then will deal with members’ questions as they arise.

The first key point is that an effective framework for corporate law seeks to strike the right balance between four ingredients — regulation, encouraging enterprise, consumer protection and fairness.

The second key point is that the limited liability partnership (LLP) model encapsulated in the Bill is firmly developed within the existing framework, which has served GB and Northern Ireland well for some years. The proposed limited liability partnerships will have exactly the same regulatory obligations as companies. For example, they will have to publish accounts and will be subject to insolvency law. That will maintain fairness to all types of business that enjoy limited liability status.

The third point is that all the key players in the UK, both professional advisers and business representatives, have welcomed the proposals.

The fourth key point is that after its consideration of the Limited Liability Partnerships Act 2000, the Department of Trade and Industry Committee concluded that, in the interests of maintaining a balance of fairness and protecting the public and consumers, it was not reasonable that limited companies should be subject to regulation in order to benefit from limited liability status if that did not apply that to limited liability partnerships.

The Government recognise that the code of partnership law requires updating and modernisation. We will be looking at that over the next few years. It is, therefore, premature to amend existing partnership law in relation only to liability, without considering it in the round.

Local interest in the Bill is positive, and has increased since the Bill was published. We have had a number of enquiries from businesses — most of them small businesses — about the Bill and when it will come into effect.

Finally, limited liability partnership status will be optional. It will be something that a business and a partnership make a choice about. There will be nothing mandatory about it.

Mr Wells: Do you see this as a parity issue?

Mr Bohill: I see the value of having a consistent regime of corporate law throughout the UK. The business community, particularly those businesses that operate both in Northern Ireland and GB, seeks conformity between Northern Ireland and GB and feels very strongly that it would not want to deal with two regimes.

Mr Wells: It would be normal for the Department, when introducing a Bill, to consult widely with all interested parties. I assume that the Department has done that in this case.

Mr Bohill: Yes.

Mr Wells: No doubt you have a huge mailing list of consultees.

Mr Bohill: The list of consultees is at the back of the memorandum. The feedback has been favourable, particularly when the Limited Liability Partnerships Act 2000 was being considered in GB. Bodies such as the Confederation of British Industry (CBI), which is a UK-based organisation, would have consulted the Northern Ireland CBI as part of that process. The CBI was in favour of the Bill.

Mr Wells: Apart from the one submission that we are dealing with, have you had any other submissions in a similar vein?

Mr Bohill: No, none at all.

Mr Wells: So there is general contentment with this among the business community in the Province?

Mr Bohill: Very much so.

Mr Wells: The Minister has written to us to say that 2,000 limited liability partnerships have been incorporated in England and Wales. The figures that we have been given show that that is quite a small percentage of the potential registrations. Do you feel that that is adequate, or does it show that there is not a great deal of enthusiasm in the rest of the UK for this? What is the likely reaction in Northern Ireland if this legislation goes on the statute books?

Mr Bohill: The Department of Trade and Industry is encouraged by the level of interest in limited liability partnerships. I say that on the basis of direct dialogue with the officials dealing with this. The level of enquiries in Northern Ireland before the Bill was published was running at around two or three a week, and I accept that those are small numbers. That has doubled to six to eight a week since the Bill was published. That interest has come primarily from small businesses, and that is associated with wanting to know when the Bill will come into effect.

Mr Wells: I am happy with that.

Mr Neeson: The whole purpose of devolution is to develop legislation that meets the needs of our region — Northern Ireland. I am wary about having too much parity. While I acknowledge that company law in the UK is different from that in North America, we should give some consideration to some of the points that were put forward by Dr Twomey. The Minister’s letter states that the proposal strikes a better balance between the interests of the partnership and the interests of the consumer. Can you explain that further?

Mr Bohill: The Bill will give limited liability status to partnerships. That privilege comes with a price, which is ensuring that consumers and the public are protected. For that reason, the limited liability partnership (LLP) will be subject to the same level of regulation as a company with limited liability protection. It will have to publish its accounts and be subject to insolvency law. That is the right balance to strike. The Department feels that that is a strong feature of the legislation, as it will give consumers and other businesses that are going to do business with limited liability partnerships access to the books and information of that new type of business vehicle.

Mr Neeson: This sort of proposal would not encourage small companies to become involved in LLPs, bearing in mind that the same company law would apply to a multinational organisation and to a two-person business.

Mr Johnston: The burden of regulation on small companies as opposed to medium-sized and large companies differs in that there are lower turnover thresholds for the form of detailed accounts that need to be filed. There is less regulation under limited company legislation for small businesses, and we are also proposing to take that forward as part of the LLP model.

A company law review has also been under way for the past couple of years, and proposals on that will come forward in the next few months. We will come back to the Committee about that. It is likely that further deregulation in relation to the burden on small companies will be proposed. That will also extend to small LLPs. The balance is to try to get that right by not over-regulating.

The enquiries that we have received from organisations that want to incorporate as LLPs have been from the small firm sector rather than from medium-sized or large firms. The balance is about right, and it will be reviewed again over the next few months. That is not the last word on it. The Committee will come back to this again.

Mr Neeson: I have one reservation, which is that it complicates things for small businesses. Recently I looked at the possibility of setting up an LLP, but I decided against it because of the complications that were involved.

Mr Bohill: As Mr Johnston said, the degree of regulation is commensurate with the scale of the business. That is the current position, and it will be looked at again further as part of the company law review, which we will be examining in Northern Ireland and Great Britain over the next few months.

Mr Johnston: It is also important to examine it from a small business viewpoint, and also from the consumer’s viewpoint, in that we would be extending a privilege if we were to adopt the North American model. Alongside that privilege there has to be some form of balance to ensure that the extended liability parameters are operated correctly, which is not always the case. That measure gets the balance of fairness right.

With regard to take-up, the Department of Enterprise, Trade and Investment estimates that about 55,000 partnerships, which is about 15% of the total, will eventually incorporate. They had a slow start, but it is now building up. In Northern Ireland, about 2,000 firms may move towards the LLP model over the years.

Mrs Courtney: What are the benefits of choosing an LLP?

Mr Bohill: One benefit is the limited liability status.

Mrs Courtney: For the consumer and for the partner?

Mr Bohill: It gives limited liability to the promoters of the business. Business owners will make their own choices. If they find that there is an advantage in moving to LLP status, that option is open to them. It is not mandatory, and businesses will continue to make that commercial judgement for themselves.

Mrs Courtney: When asked if Northern Ireland would have to make radical changes to what exists in Great Britain, Dr Twomey said that only minor amendments would have to be made to partnership law. Did the Department consider making the amendments?

Mr Bohill: The Department was aware that partnership law is currently the subject of a major review in Great Britain, and its officials knew that to look at one aspect of partnership law was premature. As part of that review there will soon be an opportunity for the Assembly to look at the width, scale and ambit of partnership law.

Mr Johnston: Partnership law is an academic area with lots of debate and argument across the profession in the United Kingdom. Therefore, the Government must get the balance right with regard to taking account of the wide range of views on how partnership law should be developed. It is an area where a balance has to be struck on the way forward between a number of competing academic views. Hence, the Law Society and other bodies are actively involved in that partnership review to make sure that it gives as good a balance as possible.

Dr McDonnell: Why should I form a limited liability partnership? It seems that these partnerships will have the disadvantages of a company and none of the advantages. I empathise with the consumer protection agenda, but I feel that the Department’s efforts to encourage enterprise are sometimes strangled by over-regulation. Therefore, a limited liability partnership may be seen as a half-baked company. That is how I think it might look to someone who is trying to set up a small business.

Often, the burden of structure and compliance can far outweigh the benefits to the public or to the individuals in question. That is important to the Committee, because it has to spin out companies from Queen’s University, for instance, and the Committee wants to make the process as simple as possible. The Committee also wants to create a cheap and efficient process with the minimum of fuss in order to cover the protections that are required. I get the impression that a limited liability partnership will not have any advantages.

Mr Bohill: Limited liability companies and partnerships are different animals.

Mr Johnston: There is usually is a smaller ownership base in a partnership than in a limited company, and the Bill recognises that. It allows those partnerships that decide to incorporate as LLPs to make their own internal arrangements. In a sense, there are prescriptive constitutional requirements in the way in which limited companies are constituted, because of wider share ownership. The way in which LLPs are organised internally will be down to their own arrangements.

There is an additional clear benefit in that if you are in partnership at the moment, and have a negligent partner, your personal assets are liable. The Bill will protect those personal assets if you are innocent of the actions of your partner. That is a huge benefit. It then seems fair, within the overall body of law, to ask partnerships gaining that benefit to comply with a degree of regulation, because otherwise limited companies could ask for the same form of regulation. Why should they be different if they are under the same kind of limited liability extension? It is a matter of getting the balance right between those different business vehicles.

Dr McDonnell: Will the recording of accounts be as stringent as for a company?

Mr Johnston: There is the same turnover threshold, so the format of the accounts will be the same.

Dr McDonnell: That in turn incurs considerable debt for a low-profit company.

Mr Johnston: The turnover figure at which one is required to file audited accounts is £350,000. That is being looked at again.

Dr McDonnell: You could be spending £4,000 or £5,000 on auditors’ fees. I am not opposed, but we need to pare this tightly. You have some familiarity with small American companies, Mr Johnston. We were impressed with their efforts in the area of small business administration, their loan guarantee schemes, and the simplicity of the regulations. That is an appealing culture. We are all rowing in the same direction. We want to ensure that two people in Queen’s University or on the University of Ulster campus at Coleraine can create a structure that allows them, for example, to develop a biotechnology project.

Mr Johnston: I do not wish to pre-empt the Minister. He will be coming back to the Committee later in the year to discuss that issue and acknowledge that the law must be modernised to reflect the different types of business structure.

Dr McDonnell: You have not told him what to say to us?

Mr Johnston: No, he is aware of that.

Mr Bohill: The cost of compliance will be a key feature of that review. A couple of strands of that review are going on at the moment.

The Chairperson: Thank you. It has been a good exchange.

19 June 2002 (part i)/ Menu / 25 June 2002